How integrating sustainability metrics in sourcing processes contributes to holistic sourcing decisions
Asking Chief Procurement Officers for topics that are high on their agenda has repeatedly brought up savings, digitalization and sustainability as overarching themes. While savings have been a constant for Procurement over the centuries, digitalization and sustainability have emerged primarily over the last two decades.
And while digitalization has been well covered both in research and in practice, sustainability has often been sidelined. Challenges around assessing the commercial implications and benefits kept it from taking the spotlight. But with politicians, society and investment funds demanding organizations to take a bigger stand, now the focus is undeniable.
With the role of Procurement becoming more strategic still, this is a great opportunity for CPOs to support organizational initiatives to reduce the environmental footprint along the supply chain. Especially as advancements in technology now allow Procurement to consider sustainability next to costs, quality and other factors in their decision process, which we refer to as holistic sourcing decisions.
Sustainable Sourcing requires the inclusion of environmental dimensions next to commercial aspects when identifying and selection the best source of supply for a good or service. With little to no established metrics available, the aim of the study was to establish meaningful sustainability metrics for different commodities.
Sustainability metrics measure the current state of environmental practices, enabling organizations to monitor their supply chain partners and to compare available options. This drives transparency and allows the tracking of progress over time. By addressing and quantifying sustainable practices, the metrics are ideally suited to enhance the supplier selection in strategic sourcing processes.
For this study, we developed category-specific sustainability indicators for four different spend categories with large environmental footprints, namely raw materials, packaging, logistics & transportation and operating resources &equipment.
We conducted 17 expert interviews on top of a comprehensive literature review and uncovered 6-10 sustainability indicators for each spend category. The individual relevance was subsequently assessed in an online survey with 107procurement professionals from various industries.
Our findings empower organizations to incorporate sustainability factors into their holistic sourcing decisions in multiple ways. They
1. outline the topics most relevant to sourcing professionals for key spend categories impacting the environmental footprint of organizations.
2. point the governmental, non-governmental and public community towards areas with a high need for additional research and standardization of definitions.
3. provide transparency on sources for innovation and competitive advantage for buying organizations and suppliers.
Advanced sourcing analytics & optimization tools empower holistic sourcing decisions and bring transparency to the opportunity costs of competing alternatives. The identified sustainability metrics offer actionable insights for categories with a large environmental impact. Including them in the strategic sourcing and supplier selection processes will allow Procurement to play a significant role in driving sustainability efforts for their organization. We have discussed our findings with a panel of subject matter experts in our webinar 'Making sustainability actionable in Sourcing', which can be viewed here.
Download the full white paper here to get access to all identified sustainability metrics by category and industry.